The present invention relates to electronic verification of financial instruments, and more specifically to a system of reserving funds in customer banking accounts during check verification by a vendor.
The use of personal checks by customers to purchase goods or services from vendors is well known. The ability of individual vendors to accept these checks is limited by the degree of certainty that the vendor can collect the amount written upon the check from the bank issuing the check. More specifically, the ability to verify that the customer writing the check is in fact the valid user of the checking account and that the account is valid with sufficient funds is of paramount concern to the vendor of the goods and services.
These concerns have given rise to a multiplicity of systems, methods and procedures used by vendors, banks and outside service bureaus to validate and verify that the amount written on the check will be paid in due course to the vendor. Each solution has attempted to solve the problem of check payment with varied success.
The most basic of check verification systems is that the vendor only accepts the checks from a limited area and/or from a specific listing of financial institutions. This system may even be more restrictive by only accepting checks from persons preapproved or known to the vendor. This system allows the vendor to limit the vendor's inability to collect from customers who may be outside the practical legal reach of the vendor (e.g. outstate customers) Unfortunately, this system does not prevent loss due to fraud or insolvent customers within the check accepting range.
Another more sophisticated system requires that a check approval service verify the check when presented. Check approval comes from comparing the account number on a personal check with a listing of all possible valid account numbers from a geographic region or from comparing records against a list of account numbers that have been identified as being unsafe or unreliable. In either configuration, a check approval system still does not enhance the ability of the vendor to prevent check fraud or newly insolvent customers from presenting an invalid check to the vendor.
Check verification systems have been patented to accomplish the recording of check account numbers, transmittal to financial institutions, generation of local check approval files for specific customers, and in-store Local Area Network (LAN) systems. (E.g., U.S. Pat. Nos. 4,187,498; 5,256,863; 5,175,682; 5,201,010) These patents identify several problems associated with the actual account verification of each check as it is received.
One problem with check verification is the inability of a verification system to verify or debit the amount of funds present in the account at the time of purchase. The account information is generally protected and requires permission by the account holder to be accessed by a non-privileged party.
An unlikely problem arises in a debit card solution designed to eliminate the usage of paper checks and the delay inherent in checking account funds transfer. The debit card assures that the customer has a current account with valid amounts of credit on the debit card. These debit cards are similar to credit cards with the significant difference that the customer can only charge or debit the amount that is currently available in the checking account at the issuing financial institutions. The use of a debit card is equivalent to the use of a credit card with real time verification via telecommunication link to the issuing financial institution. The card has advantages of limiting the amount that can be withdrawn from the account and guaranteeing to the vendor that the amount withdrawn will be paid. The purchase amount from a debit card is electronically transferred to the vendor's account without the delay that normal checks require to transfer the funds from the customer's account. This debit card system is largely ideal for the vendor and the financial institution involved. The debit card has the potential to eliminate many human errors present in the current system of checking account funds transfer. Unfortunately, debit cards have not achieved widespread popularity with the consumer. It can readily be appreciated that instant transfer for many consumers is not desirable as the customer may only be able to deposit funds to the checking account on a monthly or biweekly basis while incurring debt on an essentially continuous or daily basis. Therefore, there is a need to preserve the check cashing methodology as it currently exists and yet allow the vendor the added security to assure payment of checks in the normal course of business.